What is behind the reshoring trend in U.S. manufacturing?

So maybe the problem really isn’t cheap Chinese labor after all. Maybe businesses just don’t take the time to find potential cost savings right here in their U.S. operations.

A recent report by PwC LLP, titled “A Homecoming for U.S. Manufacturing? Why a Resurgence in U.S. Manufacturing May Be The Next Big Bet,” concludes that things other than labor rates are behind the developing “reshoring” trend.

“A host of other factors – particularly transportation and energy costs, and currency fluctuations – are more likely the most salient reason U.S. manufacturers will choose to produce closer to their major customer bases,” it states.

The report also said shale gas development, which is booming in eastern Ohio, is a major factor driving investment in American manufacturing. That includes investments directly related to the surge in drilling activity and also those seeking to take advantage of the resulting lower-cost of natural gas and other feedstocks used to make chemicals and plastics.

Increased competitiveness versus foreign sourcing is one thing, but U.S. manufacturers also face stiff competition right here at home. That, too, is continuing to drive efforts to cut costs, even as the economy picks up steam and more companies’ concerns shift to getting additional product out the door.

“All companies are constantly looking at costs, because the demands of their customers are much greater,” said Craig Todd, managing partner of Cincinnati-based Amend Consulting LLC.

Mike Schmitt, owner and president of Metalworking Group (see Q&A), said its growth has been achieved by creating lean processes, on the shop floor and in its office operations.

“There’s no room for fluff in the marketplace,” Schmitt said.

A lot of the company’s efforts to drive out costs have focused on acquiring better manufacturing technology. Rather than making things with a traditional “batch” process, it sets up production lines that turn out complete products one at a time at the desired production rate. For example, it makes electrical enclosures for the state of Kentucky on a production line that’s like a car assembly line.

“If you’re doing it in less time, you’re doing it cheaper,” he said.

Todd’s partner David Velie said some of Amend’s clients have achieved major cost savings by reviewing product designs and specifications with their suppliers to eliminate unnecessary requirements.

“It’s not just beating them up on price,” Velie said. “It’s seeing how they can jointly engineer costs out of the product.”

And sometimes beating suppliers up on price can work too.

Hamilton Caster & Manufacturing Co. in Hamilton slashed almost $83,000 from its costs last year after hiring Alliance Cost Containment to analyze dozens of expense categories. About $43,000 in savings a year came from reduced shipping costs, said Steve Lippert, Hamilton Caster’s executive vice president. Another $11,000 in savings was achieved in welding supplies.

“The freight was a pleasant surprise,” said Lippert, whose 105-year-old, family-owned business makes industrial casters and wheels, and trucks and trailers used in factories.

Alliance studied purchasing records to establish a baseline then sent out requests for proposals to all of its existing vendors as well as to others who were invited to bid for Hamilton Casters’ business, he said.

Alliance charged the company 50 percent of the annualized savings and follows up for 18 months to make sure they are achieved.

“They got half the savings, but the company gets them all in the future,” Lippert said. “You can’t lose. It’s not smoke and mirrors and feel-good stuff.”

David Fields, a Cincinnati-based franchisee of Louisville-based Alliance Cost Containment, said most of the time the result is a renegotiated contract with an existing supplier, he said. That’s usually the preferred outcome because the vendor is already familiar with the customer and its needs.

Still, close ties with a vendor don’t always work to a client’s benefit, saif Fields’ partner Dan McHugh, who’s based in Springfield, Ohio. Sometimes familiarity works to their detriment.